Unlimited carry forward of unabsorbed depreciation applies from 1 April 2002, covering earlier brought-forward balances.

The Finance Act, 2001 removed the eight-year cap on carry forward of unabsorbed depreciation under Section 32(2) without any saving clause limiting the benefit to future depreciation. On that construction, depreciation available on 1 April 2002 was governed by the amended provision, so unabsorbed depreciation brought forward from earlier assessment years could continue to be carried forward without temporal limitation. The Delhi High Court therefore accepted the purposive and plain reading of the amendment and held that the Revenue's challenge failed.

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Issues: Whether the amendment to Section 32(2) of the Income-tax Act, 1961, by the Finance Act, 2001, restoring unlimited carry forward of unabsorbed depreciation, applied to depreciation brought forward from assessment years prior to its commencement.

Analysis: The statutory history showed that the earlier eight-year restriction had been introduced by the Finance Act, 1996, and that the 2001 amendment removed that restriction without creating any saving clause confining the benefit only to future depreciation. The Court accepted the reasoning that the amendment was intended to take effect from assessment year 2002-03 onwards and that unabsorbed depreciation available on 1 April 2002 would be governed by the amended provision. It approved the view that, in the absence of a contrary legislative device, the provision had to be read according to its plain and purposive effect, allowing the brought-forward depreciation to continue to be carried forward without temporal limitation.

Conclusion: The amendment to Section 32(2) was held applicable to unabsorbed depreciation available on 1 April 2002, and the Revenue's challenge failed.

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